Eco Chapter 7 Unemployment and Inflation

Lost income for labor suppliers, lost output, coupled with economic and psychological costs of unemployment on the individual and the family. :(

civilian non institutional adult population

consists of all civilians 16 years of age and older, except those in prison, in mental hospitals, or in homes for the aged; excludes military.

labor force

Those 16 years of age and older who are either working or looking for work

unemployment rate

The number of unemployed as a percentage of the labor force

discouraged workers

Those who drop out of the labor force in frustration because they can't find work

labor force participation rate

The labor force as a percentage of the adult population

unemployment rate formula

number unemployed / number in labor force

Labor force participation rate formula

Number in labor force/ number in civilian non institutional adult population

long-term unemployed

Those looking for work 27 weeks or longer

frictional unemployment

Unemployment that occurs because job seekers and employers need time to find each other; Frictional unemployment does not usually last long and results in a better match between workers and jobs, so the entire economy works more efficiently

Seasonal unemployment

Unemployment caused by seasonal changes in the demand for certain kinds of labor

Structural unemployment

Unemployment because (1) the skills demanded by employers do not match those of the unemployed, or (2) the unemployed do not live where the jobs are ; Policy makers and economists are very much concerned with this type of unemployment

cyclical unemployment

Unemployment that fluctuates with the business cycle, increasing during recessions and decreasing during expansions ; Government policies that stimulate aggregate demand aim to reduce cyclical unemployment

full employment

Employment level when there is no cyclical unemployment, not 0% rather 4-6% unemployment is considered full employment

Underemployed

Workers are overqualified for their jobs or work fewer hours than they would prefer

hyperinflation

A very high rate of inflation

deflation

A sustained decrease in the price level

disinflation

A reduction in the rate of inflation

demand-pull inflation

A sustained rise in the price level caused by a rightward shift of the aggregate demand curve

cost-push inflation

A sustained rise in the price level caused by a leftward shift of the aggregate supply curve

interest

The dollar amount paid by borrowers to lenders

interest rate

Interest per year as a percentage of the amount loaned

nominal interest rate

The interest rate expressed in dollars of current value (that is, not adjusted for inflation) as a percentage of the amount loaned; the interest specified on the loan aggrement

real interest rate

The interest rate expressed in dollars of constant purchasing power as a percentage of the amount loaned; the nominal interest rate minus inflation rate

COLA

cost-of-living adjustment; an increase in a transfer payment or wage that is tied to increase in the price level.

Real interest rate formula

Nominal interest rate - Inflation rate

Which is group is lowest/highest in unemployment rate?

Lowest: white adults, highest black teenagers

Causes of Structural unemployment?

weather/seasons on certain industries such as construction, agriculture and tourism

What arises causing structural unemployment?

Changes in tastes, technology, taxes and competition all reduce the demand for certain skills and increase the demand for other skills.